Is Europes Debt Deal Good For Penny Stocks?
Although today is Halloween, theres no reason to be scared of penny stocks. In fact, I think were about to see investors return to penny stocks in droves.
Why am I so optimistic?
In a word Europe.
Just last week, European leaders were finally able to piece together a plan to deal with the regions most immediate debt concerns. The plan was comprehensive enough to allow global financial markets to breathe a collective sigh of relief.
As a matter of fact, we saw quite the stock market rally on the day of the announcement. To give you an idea, the Dow Jones Industrial Average rose 3%. Thats an impressive single-day move for the Dow.
So whats any of this got to do with penny stocks?
Ill get back to that in a minute. First, lets take a closer look at the plan
In a nutshell, European leaders addressed three major concerns regarding the debt crisis.
First, bondholders will take a 50% loss on Greek debt. Keep in mind, the European crisis began with problems in Greece. And the question of what to do with Greek debt has been hanging over the regions head for months now.
For most bondholders, a 50% haircut is far superior to a 100% loss which is what many expected. And it also allows Greek officials to more accurately plan their budget.
Second, Europes leadership agreed to leverage up their rescue fund to 1 trillion Euros ($1.4 trillion). That should be enough firepower to keep European banks (or governments) from becoming insolvent due to debt writedowns.
Finally, the agreement includes plans for recapitalizing Europes fragile banking system. Restoring confidence to the system is one of the most important aspects to the entire process.
Dont get me wrong Europe isnt out of the woods yet. And much of the details have yet to be finalized.
However, this is a huge step in the right direction.
And its a big deal for penny stocks.
You see, European woes have kept many investors out of stocks. Instead, investors have been focusing on safe-haven investments like gold and bonds. The risks associated with Europe were just too big to ignore.
Dont forget, the financial crisis of 2008 wasnt so long ago. Many havent forgotten how quickly the financial system can implode.
But with Europe taking major strides towards an orderly resolution of their crisis, the risk trade may be coming back and with a vengeance.
Penny stocks, considered risky investments by many, are often the first to go when investors are worried about risk. However, theyre also the companies leading the market higher when investors return to stocks.
And with the risk trade back on the table, we just might see the surge in penny stocks weve been waiting for. Hang on for the ride.
Yours in profit,
Gordon Lewis
Category: Breaking News, Investing in Penny Stocks
